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Japan Moves to Take Stakes in Ailing Companies

The Japanese government outlined on Tuesday a plan to inject state money into ailing companies in exchange for equity stakes, a move that echoes the partial nationalization of some troubled financial firms in the United States and Europe.

The announcement, by the trade ministry, is the latest in a string of efforts by the Japanese government to aid companies — in this case especially small and medium-size businesses — that are struggling as demand dwindles.

In the last few weeks, profit warnings and job losses have streamed steadily from every sector of the economy. Recent statistics showed bankruptcies in Japan jumped 24 percent in December from a year earlier, and 33 listed firms were among the victims last year — the highest tally in at least 60 years.

This has prompted the Japanese government, like those in Europe and the United States, to consider taking stakes in ailing companies, rather than relying on the country’s banks to increase lending — something that beleaguered financial institutions have been reluctant to do since the collapse of Lehman Brothers in September.

Although Japan’s banks were little exposed to the mortgage-related products that forced many of their American and European counterparts into billions of write-downs, the economic downturn and last year’s stock market rout have begun to wear on Japanese financial institutions.

The country’s largest brokerage firm, Nomura, reported a $3.8 billion loss in the fourth quarter of 2008 on Tuesday, in large part because of costs related to its acquisition of the Asian, European and Middle East operations of Lehman Brothers.

Tuesday’s plan by the trade ministry, to be considered by the cabinet next month, reaches beyond the banking sector to other parts of the Japanese economy. It foresees the state-owned Development Bank of Japan buying shares in companies that are having trouble raising money amid the lingering credit crisis. The government will guarantee the investments should the companies go bankrupt, the ministry said.

Photo

Prime Minister Taro Aso, right, and the economics minister, Kaoru Yosano, in the lower house of Japans legislature on Tuesday.Credit
Issei Kato/Reuters

Although it did not specify what type of companies might be eligible for such help, the plan would probably be aimed mainly at the small and medium-size outfits that employ 70 percent of the country’s work force and are crucial suppliers to corporate giants.

While shrinking domestic and international demand, compounded by a strong yen, is weighing heavily on industry leaders like Sony and Toyota, it is the smaller companies that have found it hardest to obtain bank lending. Their plight has become a highly politicized issue in Japan ahead of elections later this year.

Japan’s recession, and broad dissatisfaction with the way in which the government of Taro Aso, Japan’s prime minister, is handling the crisis, has caused Mr. Aso’s approval ratings to tumble below 20 percent in recent opinion polls, raising the possibility that the governing Liberal Democratic Party will lose the election.

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Highlighting the political divisions and pre-election positioning, a 4.8 trillion yen, or $53.7 billion, stimulus plan was approved by Parliament on Tuesday, but only after lengthy discussions.

That plan is part of a series of stimulus measures announced since last summer. They include moves by Japan’s central bank to lower interest rates to near zero and to try to shore up ailing Japanese credit markets by buying commercial paper, a type of short-term corporate debt.

Economists said it remained unclear, however, how the plan would be put in place, and some cautioned that it should not be used to artificially prop up ailing companies at taxpayers’ expense. Others said that the measures would do little to address the fundamental collapse in demand.

The ministry said that capital would be provided only while the companies were facing difficulty in fund-raising because of market turmoil, and that those that receive help would be required to draw up plans to increase profitability.

A version of this article appears in print on , on Page B3 of the New York edition with the headline: Like U.S., Japan Moves to Take Stakes in Ailing Companies. Order Reprints|Today's Paper|Subscribe